We had a number of industry reports out this week, including Newzoo (which we discuss in detail below) and Drake Star. Each of them gave a mix of both positives and negatives to consider when thinking about the coming year. As reported by Drake Star, 2023 saw a fall in both the number of announced transactions, just 163, and the total value of these transactions, cUS$10bn. However, it was good to see both Devolver and Keywords Studios mentioned in the report, given we believe this shows the firms, both of which have strong balance sheets, taking advantage of the depressed valuation multiples in the sector. Better still, we also noted that nDreams was included in the top10 M&A deals as the most valuable UK transaction, following its US$110bn sale to Aonic. Having touched base with the management team recently, we believe its performance, in this cutting edge sector, will be something to keep an eye out for.
This week we discuss the key themes pulled out of New Zoo’s latest industry report, discuss how Indie games fit into the gaming ecosystem and what the future may hold for this genre, and summarise the latest developments in Europe between regulators and Apple.
Newzoo report - key themes
Newzoo recently published its latest gaming trends report, and we believe it is well worth taking the time to read it in full (link below), as it touches on a multitude of interesting themes. The most interesting, we think, was that the overwhelming majority disagreed with the idea that game companies would take riskier bets in 2024 than 2023. This is unsurprising given the focus on ROI, and the data on franchises provides a much greater level of predictability than newer titles. Below, we discuss how that could create space for indie games. Another interesting result was that, despite the avalanche of layoffs in 2023, 55% of leaders thought the layoff would be worse in 2024. This echoes the sentiment reported by Gamesindustry that, as one CEO put it, “If 2023 was the year of layoffs, 2024 will be the year of closures”. We have already seen evidence of this early on, with Microsoft joining in this week by announcing 1,900 job losses following its merger with Activision. This final part we thought we would pick out, is that 82% of industry leaders thought that the number of users on gaming subscription services would increase. Despite several publishers turning down subscription deals - which implies these offers are coming down - it remains clear that subscription services in gaming should continue to play a major part. Netflix clearly agrees, given the amount of investment it is are putting into building up its games database.
Read more here: newzoo.com
Where do Indie games fit in?
A ridiculously high number of releases, especially AAA games, squeezed the gaming market in 2023. The discounting of some of these games, to gain traction, encroached on the traditional indie gaming space. This industry specific problem coincided with a significant drop in consumer purchasing power alongside a widespread return to pre pandemic habits. As the ROI fell for games, the industry began a severe rightsizing, leading to layoffs across the board and the closure of many small developers. As we discuss above, one of the key outcomes of this is that companies are less willing to take a risk on unproven titles. By nature, that is exactly what indie games are. However, we believe this offers an opportunity for those with the ability to survive it. Their focus in 2024 is to be on established titles, which creates a clear space for the indie market to operate. Xbox recently announced its indie selects initiative, which aims to pick 6 indie titles not included in Game Pass, and promote them through a new channel called ‘Featured Indies’. The aim is to engage better with users looking for these unique and interesting opportunities. We think this underlines that Indie games will continue to play an important role in the eco-system, and firms like Devolver Digital, which publish indie titles, have an increasingly important job to ensure the commercial success of titles.
Read more here: xbox.com
Apple in Europe
Last week, we talked about how Apple had circumvented a US court ruling by offering T&Cs that included a 27% commission to be paid by companies for sales completed using an external payments link. This compares to the 30% commission it currently charges for payments for its own payments processing. However, in Europe we have seen a more radical shift in order to comply with the European Unions Digital Markets Act. Both alternative app payments and, more importantly, alternative app stores will now be allowed on Apple devices. The new terms offered by Apple give it 17% commission for alternative payment apps, and 20% that use its own payment offering. In addition, it has also introduced a €0.5 fee per install after the first 1m. Of course, Epic’s CEO Tim Sweeney immediately declared the new policy “a devious new instance of malicious compliance”, so we are sure that we can expect legal challenges to follow.
Read more here: gamesindustry.biz
In other news
- Miscrosoft cuts 1,900 staffers
- Reikon Games, developer of Ruiner lays off more than half its staff
- True Gamers secures $45m investment
- Nexon’s warhaven is shutting down
- Twitch expands partner program to increase streamer revenue share